ANCHORAGE — Eli Lilly, the drug maker, systematically hid the risks and side effects of Zyprexa, its best-selling schizophrenia
medicine, a lawyer for the State of Alaska said Wednesday in opening
arguments in a lawsuit that contends the drug caused many schizophrenic
patients to develop diabetes.

Eli Lilly has faced legal problems over evidence that Zyprexa, a top-selling medicine, tends to cause weight gain and diabetes.

The lawyer, Scott Allen, said
that memorandums from Lilly executives showed that the company knew of
Zyprexa’s dangers soon after the drug was introduced in 1996. But Lilly
deliberately played down the side effects, Mr. Allen said, so that
sales of Zyprexa would not be hurt.

Lilly’s conduct was
“reprehensible,” Mr. Allen said. In the suit, which is being heard in
Alaska state court before Judge Mark Rindner, the state is asking Lilly
to pay for the medical expenses of Medicaid patients who have contracted diabetes or other diseases after taking Zyprexa.

The
Alaska case is the first Zyprexa-related lawsuit to reach a jury trial
and is being closely watched by other states and by federal prosecutors
who are investigating Lilly for the way it marketed Zyprexa. A jury of
seven women and five men is hearing the case in Anchorage.

In
their opening arguments, lawyers for Lilly said that the company had
done nothing wrong and was proud to sell Zyprexa, which they described
as a breakthrough treatment for people with severe mental illnesses.

Even
as the state’s lawyers claimed that Zyprexa was dangerous, Alaska’s
Medicaid program continues to pay for the medicine, said Nina Gussack,
a lawyer for Pepper Hamilton, which represents Lilly.

Ms.
Gussack said that Lilly would call Dr. R. Duane Hopson, the medical
director of the state-financed Alaska Psychiatric Institute, to bolster
its case that Zyprexa’s benefits outweigh its risks.

Another lawyer for Pepper, George A. Lehner, said that Lilly had always properly disclosed Zyprexa’s side effects to the Food and Drug Administration.

Judge
Rinder has divided the trial into two parts. In the first part, the
jury will determine whether Lilly is liable for hiding Zyprexa’s risks.
If it finds that Lilly did nothing wrong, the case will end.

If
it finds Lilly liable, a second jury will be chosen to hear a trial
that will determine whether Zyprexa caused the maladies of people who
took it and how much the company must pay in restitution.

The
state has not made a specific demand for restitution. Ed Sniffen, the
senior assistant attorney general for Alaska, said that damages could
rise to the “hundreds of millions” of dollars if the state wins and is
awarded treble damages for the cost of the care it has provided.

Zyprexa
is among the world’s top-selling medicines, with sales of $4.8 billion
in 2007, about half that in the United States. About 23 million people
have taken the drug since it was introduced.

But Lilly has faced
mounting legal problems over Zyprexa as evidence of the drug’s tendency
to cause weight gain and diabetes has emerged. Lilly has already spent
about $1.2 billion to settle about 30,000 claims from people who say
that Zyprexa caused them to develop diabetes or other diseases.

In
addition, federal prosecutors are conducting civil and criminal
investigations into whether Lilly played down Zyprexa’s risks and
marketed the drug “off label,” for patients who did not have
schizophrenia or bipolar disorder.

Federal
law prohibits drug makers from promoting medicines for uses that have
not been approved by the F.D.A., although doctors can prescribe drugs
for any use they see fit.

The company also faces suits from many
states that want to be reimbursed for the cost of providing medical
care to Medicaid patients who took Zyprexa. Most schizophrenia patients
are unemployed and receive medical coverage through Medicaid. In all,
states and the federal government spent about $1.5 billion on Zyprexa
last year.

Lilly and the prosecutors in Pennsylvania are
discussing an overall settlement of the state and federal
investigations and lawsuits that would require Lilly to pay $1 billion
to $2 billion in fines and restitution to federal and state governments.

The
negotiations in Pennsylvania increase the importance of the Alaska
trial, lawyers say. If Lilly wins, its hand will be strengthened in the
settlement talks. If Alaska wins, other states and federal prosecutors
are likely to demand even more money.

Many of the memorandums and
e-mail messages presented by Mr. Allen, the lawyer for the state, were
disclosed in two articles in The New York Times in December 2006. They
show that Lilly executives were concerned as early as 1999 that
Zyprexa’s sales might be hurt if doctors believed that the drug caused
diabetes.

In one memorandum in October 2000, a Lilly manager
wrote that a panel of doctors convened by the company had warned that
“unless we come clean on this, it might get much more serious.”

Nonetheless,
Lilly continued to encourage its sales representatives to play down the
risk of weight gain and diabetes, the memorandums showed. In a July
2001 memorandum, a Lilly executive said the company was “betting the
farm on Zyprexa.”

Only last year, under pressure from the F.D.A.,
did the company acknowledge in the label that Zyprexa appears to have
bigger risks for high blood sugar than other medicines for
schizophrenia.

Mr. Allen ended his remarks with a reference to the July 2001 memorandum. “It’s time to call that bet,” he told the jury.

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